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Home My Public Portal About03 Management Discussion & AnalysisCOMPREHENSIVE ANNUAL FINANCIAL REPORT CITY OF RANCHO MIRAGE, CALIFORNIA ~~ ~ ~,'~~~ „~.~ ~ ~~ ~ . ~ x ,' ~ ~ ~ ~+a MANAGEMENT'S DISCUSSION AND ANALYSIS Qur discussion and analysis of the City of Rancho Mirage's financial performance provides an overview of the City's financial activities for the fiscal year (FY) ended June 30, 2007. Please read it in conjunction with the accompanying transmittal letter and. the accompanying basic financial statements. FINANCIAL HIGHLIGHTS • The City's net assets from governmental activities increase 16.5% to $183,9 million as a result of this year's operating and capital activities. All of the City's financial activities are considered governmental activities. . • During the year, the City's revenues ($64.7 million) exceeded expenses ($38.6 million) by approximately $26.1 millionl The term City includes the General Fund, Redevelopment Agency, Housing Authority, Library and all other Funds identified in this report. • Tn the City's General Fund, revenues ($22.2 million} exceeded expenditures ($20.7 million) by approximately $1.5 million before transfers to and .from other funds. After considering transfers to and from other funds, revenues, transfers in and proceeds from land sale ($25,7 million) exceeded expenditures and transfers out ($21.8 million) by approximately $3.9 million. Tt is important to note that the General Fund's financial statements include the financial activities of the License Tax Fund and the two CAPS (Citizens Option for Public Safety) Funds. • At June 30, 2007, the General Fund's undesignated fund balance was approximately $65 million, an increase of approximately $8.9 million from June 30, 2006. The undesignated fund balance of approximately $65 million is strictly that of the General Fund and excludes the fund balances of the three Funds referenced directly above. • The City's capital assets increased to $158.3 million from $151.6 million. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets, which identifies the City's assets, liabilities and net assets, and the Statement of Activities, which identifies revenues and expenses, provide summary information about the activities of the City as a whole and allow alonger-term view of the City's finances. Fund Financial Statements of the City's major and non-major governmental funds tell how City services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City's operations in more detail than the government-wide statements by providing information about the City's most significant funds. Reporting the City as a Whole: The Statement of Net .Assets and the Statement of Activities Qne of the most important questions asked about the City's finances is, "Ts the City as a whole better off or worse off as a result of this year's activities?" The Statement of Net Assets and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. 0n the other hand the Fund Financial Statements are reported on the modified accrual basis of accounting as discussed on the next page. These two statements report the City's net assets and changes in them. The City's net assets, the difference between assets and liabilities, are one way to measure the City's financial health or financial position. Over time, increases or decreases in the City's net assets indicate whether its financial health is improving or deteriorating. The City's net assets increased this year by approximately $26.1 million from June 30, 2006 to June 30, 2007, due to the following: First, revenues exceeded expenditures by approximately $14.8 million. Second, there was a net increase in capital assets in the amount of, approximately $10.5 million due to construction activities and land purchase on Bob Hope Drive. Third, long-term liabilities decreased by approximately $4.7 million. Fourth, accrued interest payable on outstanding bonds .decreased by approximately $624,000. These increases were offset by the increase of accumulated depreciation in the amount of approximately $4.5 million. All of the City's services are considered to be governmental activities. The Statement of Net Assets and the Statement of Activities present information about these governmental activities, including general government, community development, public safety and public works. Transient occupancy tax, sales tax, interest income, construction permits, franchise fees, property tax and other revenues finance these activities. Reporting the City's Most Significant Funds: Fund Financial Statements The Fund Financial Statements provide detailed information about the most significant funds and not the City as a whole. Included are the General, Library, .Fire Tax, Housing Authority, ,Low Cost Housing, Whitewater Debt Service, Northside Debt Service, whitewater Capital Projects and Northside Capital Projects Funds as well as lesser funds reported collectively as Non-major Governmental Funds. Some funds are required to be established by State law. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City currently has just one type of fund-govern~cental-which uses the following accounting approach. Governmental funds focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. All of the City's services are reported in governmental funds. These funds are reported using an accounting method called the moth zed accrual accounting. Under this method of accounting, revenues are recognized in the accounting period in which they become measurable and available to finance expenditures of the current fiscal period while expenditures are generally recognized in the accounting period in which the liability is incurred with certain exceptions. For example, the issuance of long-term debt does not result in the .recording of an expenditure in governmental funds. However, as principal and interest payments are made, the expenditure is recorded. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is described in a reconciliation following each of the fund financial statements. The City as Trustee: Reporting the City's Fiduciary Responsibilities The City is the trustee, or f fiduciary, for certain amounts held on behalf of developers, property owners, and others. The City's fiduciary activities are reported in a separate Statement of Fiduciary Assets and Liabilities. We exclude these activities from the City's other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. THE CITY AS A WHOLE The City's net assets for the fiscal year ended June 30, 2007 were $183.9 million as shown in Table 1. Table 2 shows changes in net assets of $26.1 million due to the reasons listed on the previous page. Table, l Net Assets As of June 30, 2007 and 200b Current and other assets Capital assets Total Assets Long-term debt outstanding Other liabilities Total Liabilities 2007 2006 Net assets: Invested in capital assets, net of debt 64,597,727 57,911,b77 Restricted 45,132,171 30,561,870 Unrestricted 74,230,761 69,366,764 Total Net Assets The City's Net Assets are made up of three components: Investment in Capital Assets Net of Related Debt, Restricted Net Assets and Unrestricted Net Assets. Unrestricted net assets, the part of net assets that can be used to finance day-to-day operations, account for approximately 40°10 of the total net assets. y Table 2 Changes in Net Assets Year-Ended June 30, 2007 and 2006 Governmental Activities 2007 2006 Revenues Program Revenues - Chargesfar services Operating grants and contributions Capital and grants contributions Taxes - Tax Increment Net of Pass-Through Payments Property taxes Transient occupancy taxes Sales tax Franchise taxes Motor Vehicle In-Lieu tax Library and fire services tax Other tax interest income, net of change in fair value Other Total Revenues Governmental Activities 2007 2006 $ 197,874,208 183,023,026 158,342,171 151,671,730 _ 356,216,379 334,69, 4,756 164,266,702 169,021,775 7,989,018 7,832,670 172,255,720 176,$54,445 5 $ 6,484,304 4,922,113 2,508,829 4,802,592 776,847 703,715 20,186,002 18,471,347 3,352,551 2,846,809 5,176,838 .5,835,222 5,545,232 5,861,699 1,246,691 1,068,537 96,326 107,131 7,778,959 7,053,984 2b5,511 222,057 8,660,681 5,369,317 2,622,082 2,128,1I? 64 700 853 59,392642 Expenses General government Public safety Public works Cultural and recreation Interest on long-term debt and other charges Total Expenses Increase (decrease) in net assets Program Revenues 15% Interest Incon Other 17% 2007 14,046,413 9,993,457 3,606,363 3,609,893 2006 16,020,796 10,567,863 19,164,023 5,495,894 7,324,379 9,471,741 38,580,505 60,720,317 $ 26,120,348 (1,327,675) SOURCES OF REVENUE Taxes Library & Fire I FUNCTIONAL EXPENSES I Services 12% General Government Interest on Long-Term Debt and Other Charges 19% Cultural & Recre 9% Public Safety 26°ic ^Property Tax ^Transient Occupancy Tax OSales Tax OOther The City's total governmental activities revenues were $64,700,853 as compared to $59,392,642 for last year. Property taxes, which include Redevelopment Agency tax increment, accounts for 36% of the total revenues for the current year. Other major revenue sources include interest income net of change in fair value at 13%, transient occupancy tax at 8% and sales tax at 9%. The increase from last year in property tax revenue ($2.2 million) is primarily due to increased tax increment revenue as a result of the increase in assessed value in the two redevelopment project areas. The substantial increase in interest income net of change in fair value ($3.3 million) is due primarily to the increase in 6 interest rates, increases in overall fund balance for the ,City as a whole and the change to the City's investment policy in February 2007 to permit a maximum of 25% of the operating portfolio to be invested between 5 and 10 years compared to 15% previously. Total cost of all governmental activities was $38,580,505 as compared to $60,720,317 for last year. This $22.1 million,. decrease. is primarily due to a decrease in capital improvement project expenditures in the current year. Several large projects were completed or substantially completed in the prior year such as the City's new library, Santa Rosa Villas -the Housing Authority's new senior housing project, the expansion of the, City's corporate yard and utility undergrounding projects in several residential areas. Government Activities Table 3 presents the cost of each of the City's activities-general government, public safety, and public works-as well as each program's net cost (total cost less revenues generated by the activities). The net costs show the extent to which the City's general revenues support each of the City's programs. Table 3 Net Cost of Governmental Activities As of June 30, 2007 and 200b 2007 2006 Total Cost of Net Cost of Total Cost of Services Services Services General Government Public Safety Public works Cultural and recreation Interest on long-term debt & other charges Totals FINANCIAL ANALYSIS OF THE CITY'S FUNDS Net Cost of Services 12,358,915 10,215,475 13,817,742 4,430,024 9,471,741 50,293,897 At year-end the City's Governmental Funds reported a combined fund balance of $191,751,875. This includes the General Fund's total fund balance of $73,868,852 of which $65,012,840 is undesignated, $6,100,752 is designated for continuing appropriations and $1,564,014 is reserved for encumbrances. The General Fund's undesignated fund balance increased $8,891,427 due primarily to the following: • Revenues and transfers in exceeded expenditures and transfers out by $3,918,126. • The expenditure of bond proceeds in the amount of approximately $5,580,200 for various City capital projects such as land acquisition, street and median island improvements, the re-roof of the City Hall parking lot and the undergrounding of utilities. In the prior fiscal year, these bond proceeds were reserved within the General Fund's fund balance. These subsequent capital expenditures then have the effect of increasing undesignated fund balance • Net decrease of approximately $606,800 in other reserves such as encumbrances and continuing appropriations which has the effect of increasing undesignated fund balance. As noted on page 3, the General Fund's financial statements include the financial activities of the License Tax Fund and the two COPS (Citizens Option for Public Safety) Funds. However, the General Fund's undesignated fund balance increase of $8,891,427 noted above is for the General Fund a~• 7 $ 14,046,413 9,993,457 3,606,363 3,609,893 7,324,379 38 580505 9,465,212 9,505,823 546,868 1,968,243 7,324,379 28,810,525 16,020,796 10,567,863 19,164,023 5,495, 894 9,471,741 60,720,317 Other major Funds: • The Library Fund's fund balance increased to $2,362,677 from $1,990,299 due to revenues anal transfers in exceeding expenditures. Due to the increased size of the new Library, operating expenditures increased approximately $293,804. However, revenues and transfers from other funds still exceeded expenditures by approximately $372,400. • The Fire Tax Fund's fund balance increased to $414,103 from $369,996 due to an increase in its reserves and designations. Since the Fire Tax Fund's operating expenditures exceed operating revenues on an annual basis, the General Fund provides an operating subsidy to maintain a $0 undesignated fund balance. • The Housing Authority's total fund balance is $21,695,823 all of which is reserved for affordable housing projects. The approximate $3.6 million increase in fund balance is due primarily to the transfers from the Redevelopment Agency representing 20% of the Agency's tax increment, known as housing set-aside, far affordable housing. • ~ The Redevelopment Agency's Low Cost Housing. Fund's fund balance decreased from $32,085,816 to $31,397,961. This amount is available to reimburse the Housing Authority, from bond proceeds, for the development of additional affordable housing. Prior to FY 2003-04, this Fund was only used to account for the 20% of annual tax increment revenue that is required to be used for low-and moderate-income housing projects pursuant to State redevelopment law. After accounting for debt service on outstanding bonds and some minor operating costs, the annual balance of tax increment revenue is transferred to the Housing Authority, a separate legal entity, where it is used for the retention, development and other costs and expenditures related to the provision of affordable housing. 1n December 2003, the Redevelopment Agency issued $67,760,405 in bonds. 0f this amount, $34,565,000 was tax allocation housing bonds which are accounted for in the Low Cast Housing Fund. • The VVhitewater Project Area Debt Service Fund's fund balance increased slightly from $949,252 to $967,730 due to revenues exceeding expenditures and transfers out. • The Northside Project Area Debt Service Fund's fund balance also increased slightly to $2,346,862 from $2,290,296 due to revenues exceeding expenditures and transfers out. • The whitewater Project Area Capital Projects Fund's fund balance increased to $9,190,173 from $7,135,894. The increase of $2,054,279 is due to the transfers in from the whitewater Debt Service Fund. The transfers represent excess tax increment in the Debt Service Fund after deducting expenditures for bond debt service, pass-through payments and the 20°10 of tax increment revenue set aside far affordable housing purposes. • The Northside Project Area Capital Projects Fund's fund balance increased to $35,044,221 from $32,350,554. The $2,693,667 increase is primarily due to the transfers in from the Northside Debt. Service Fund. The transfers represent excess tax increment in the Debt Service Fund after deducting expenditures for band debt service, pass-through payments and the 20% of tax increment revenue set aside for affordable housing purposes. General Fund Budgetary Highlights Revenues: Various minor budget adjustments were approved by Council at mid-year. See the Budgetary Comparison Schedule on page 90 for details. Final year-end revenues exceeded budgeted amounts by $667,500 primarily due to the increase in unrealized gains on investments which is not budgeted. Expenditures: Various expenditure .budget adjustments were approved by Council at mid-year and year-end. See the Budgetary Comparison Schedule beginning on page 91 far details. Actual expenditures of $20,704,595 were $3,915,983 less than the final budget primarily due to budgeted capital improvement projects not being completed by the end of the fiscal year (approximately $1.6 million) and reduced expenditures for General Government divisions (approximately $1.4 million). CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2007, the City had $158.3 million invested in a broad range of capital assets, including land, buildings, park facilities, streets, traffic signals and vehicles and equipment. This amount represents a net increase (including additions and deletions) of approximately $6.7 million over last year and includes the purchase of 5.13 acres on Bob Hope Drive, various street improvement projects and the completion of Santa Rosa Villas, the Housing Authority's new senior housing project. More detailed information regarding the activity for the year ended June 30, 2007 can be found in the notes to the financial statements section (note 5). Table 4 Capital Assets at Year-End (Net of Depreciation) June 30, 2007 and 2006 Government Activities 2007 2006 Land & Rights of way $ 28,500,074 25,281,508 Buildings and improvements 38,844,326 27,751,711 Furniture & Fixtures 1,442,774 1,455,474 Equipment 928,740 614,573 Infrastructure 88,342,488 89,309,832 Work-in-Progress Totals CAPITAL ASSETS 283,768 7,258,631 $15 8,342,170 151,671,729 ~ Work-in-Progress ^ Infrastructure 2006 2007 Debt _ 2p~40p~0p p 4~'~~~~0p p 6a'~~~~0p p 8~'~~~~0pp I~~~Opp~~~0 ~ Equipment ^ Furniture & Fixtures ^ Buildings and Improvements ^ Land & Rights of Way 9 At year-end the City's governmental activities had $164,266,702 in bonds, capital leases, claims payable and compensated absences as compared to $169,021,775 at the prior year-end. The decrease of approximately $4,755,000 is due to debt service payments. More detailed information can be found in the notes to the financial statements (note 6). Table 5 Outstanding Debt atYear-End June 30, 2007 and 2006 . Government Activities 2007 2006 Revenue Bonds $ 5,625,000 5,775,000 Tax Allocation Bonds 157,119,221 161,464,680 Capital Leases 20,199 43,428 Claims Payable 288,025 463,935 Compensated Absences 1,214,257 1,274,732 Totals 164 266 702 169,021.775 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The General, Fund's FY 2006-07 actual operating revenues totaled approximately $24.7 million. FY 2007-08 budgeted operating revenues total approximately $26.9 million - an increase of approximately $2.2 million. This increase is primarily due to increases in sales tax ($944,000), transient occupancy tax ($470,000) and interest earnings ($320,000). The increase in sales tax is based on new businesses scheduled to open in the fiscal year and the effect of new tourism and marketing programs being introduced in the fiscal year. The increase in transient occupancy taxis also based on the impact of the new tourism and marketing programs and the anticipated reopening of the newly remodeled and greatly expanded Ritz Carlton Resort. The increase in interest earnings is based on an anticipated interest rate of 5% for the fiscal year and, at the time of the budget preparation, an estimated undesignated fund balance of approximately $62.5 million at June 30, 2008. The City's General Fund has budgeted expenditures in the amount of $23.5 million for FY 2007-08. This is a decrease of approximately $1.6 million compared to the FY 2006-07 budget due primarily to fewer capital improvement projects budgeted in FY 2007-08. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Finance Department at the City of Rancho Mirage, 69-825 Highway 111, Rancho Mirage, California 92270, (760) 770-3207. 10